Rising oil prices, unrest in Mideast take toll on investors' confidence
The shine is off the equity bull run's birthday glow, as global markets caved Thursday on fears that rising energy prices and a flare-up of fiscal troubles in Europe have stolen the economic recovery's momentum.
Markets in North America fell steeply, with benchmark indexes in Toronto and New York shedding over 200 points and recording their worst one-day performance in months.
Traders appeared to lose confidence that the stream of heady economic data of late can keep up the torrid pace. Trade statistics from China, Canada and the United States disappointed, and weekly U.S. jobless claims took an unexpected jump.
But analysts say other factors are weighing heavily on investors, such as North African and Middle East unrest driving oil prices higher and threatening to upend a U.S. recovery that appeared to have turned a corner.
Reports from Saudi Arabia, the world's largest oil producer and exporter, indicate police there shot at demonstrators on the eve of a round of protests against the region's political leaders.
Meanwhile, rating downgrades this week in Greece and Spain -coupled with the threat of a rate hike from the European Central Bank -has rekindled worries over Europe and the possibility that Portugal is on the verge of asking for financial assistance.
"We may be seeing indications of an economic slowdown," Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages $3 billion US, told Bloomberg.
"The market has been whistling past the graveyard of higher oil prices and consumers pulling back, but now it's starting to weigh down on stocks."
Brian Bethune, chief Canadian economist at IHS Global Insight, said January trade data from Canada
-showing the trade surplus shrunk considerably -provided a reality check to markets and warned of a possible soft patch ahead.
"One has to be careful in terms of separating the signal from the noise and be cognizant of the risks that lie out there," he said.
"Even though the recovery appears to be stronger, the actual number of risks hasn't shrunk."
Stock markets across the globe shed ground. The Dow Jones industrial average fell 228.48 points, its worst day in seven months; the broader Standard & Poor's 500-stock index dropped 1.9 per cent to 1,295.11, its lowest level since January; and the benchmark Toronto stock index plunged 246.13 -continuing a bad week for Canada's top equity market.
The Canadian dollar, considered a play on global growth, fell to its lowest level in a week, closing the day at 102.47 cents US, down 73 basis points.
Until recently, markets have pushed higher as data point to strengthening U.S. demand, roughly 30 months after the financial crisis hit its peak and U.S. financial titans fell by the wayside.
February's labour market data were encouraging, as the economy added a better-than-expected 192,000 jobs, and gauges of economic activity in the manufacturing and services sectors posted robust readings in recent months.
Paul Ashworth, chief U.S. economist at Capital Economics, said the U.S. economy is "getting a bit of goosing" from additional government stimulus and the Federal Reserve's $600billion US asset-purchase plan. But the impact of stimulus will begin to fade in the second half of the year, "and that would be the main driving force behind any slowdown," he said. "And markets may be cluing into that."
Capital Economics' official outlook expects strong growth in the coming months but a "marked slowdown" later in 2011.
